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Sunday, December 18, 2011

SPX and Dow Update: Critical Week for the Short Term?

On Friday, the market again performed in accordance with the expectations of the preferred count, with the Dow and SPX hitting their targets and reversing within just a few points. This does remain a difficult market to anticipate, however. This week could be critical to unveiling the market's intentions.

While the preferred count has hit every single target I've published for over a week, I've been able to gauge those targets by the very short-term structures -- so the fact that they've hit doesn't tell me much about the larger count. At present, the prices remain at an important, larger, inflection point. I am expecting lower prices early in the week (again, based on short time frames), but what happens from there should finally tell us which count is unfolding. The preferred count needs to see some strong downward movement in the near future, or it will become difficult to maintain.

There are several ways to label the current decline, and if it is indeed the impulse wave the preferred count thinks it is, then it needs to show some acceleration lower soon. There are only so many first and second waves that seem "reasonable" -- after a time, one has to start considering that the whole structure may just be a corrective wave instead.

I do feel that the market is in an area where shorts need to remain aware of a potential rally; bearish sentiment is also reaching levels that have generated rallies in the recent past. The main clue we have which could serve as warning of a larger rally unfolding would be the trend line/channel that has formed in several markets. A break of the upper trendline would be a signal to become very cautious of a bigger rally beginning.

The first chart I'd like to share is one of the NYSE Composite Index (NYA). This is a very broad index, encompassing all the common stock on the New York Stock Exchange -- and it's one I like to watch to get a more general "pulse" of the market. The NYA shows a very clearly-defined triangle. A breakout/breakdown from the triangle would imply a move of 20% or more in the direction of the break.

The next chart is the SPX, and it's labeled with the preferred count in blue/red, and the alternate in black. The red/blue labels are the most bearish labeling of the decline possible, and may need to be adjusted, depending on what happens this week. The blue "Alt: B" target zone is the safer and more conservative target.

Do note that the wave labeled with red (1) is potentially a complete 5-wave form, and thus bears the black "Alt: c" label. At this particular point, short term downside targets are a bit sketchy. It's hard to count the rally on Thursday and Friday as part of an impulse -- it certainly appears corrective, and as such, suggests lower prices. But the larger structure is so vague, it's very tricky to understand exactly what's unfolding at the moment -- there are clues here and there, but little in the way of a concrete formation.

The final chart is the Dow, and it's labeled a bit differently than the SPX, because the price structure there is actually markedly different. It also calls attention to another potentially important support/resistance zone, in the form of the blue trendline. This index shows a double-top, formed early this month, much more clearly than the SPX does. The blue support/resistance line could be the key battleground which determines whether the bulls or bears emerge victorious for the next week or longer.

The NDX chart remains the same as last week, and has continued to perform in accordance with the expectations of the preferred count.

In conclusion, I remain bearish over the long term; my stance in that regard has been unchanged since May. What we're really trying to determine now is exactly when the next big leg down will get kicked off in earnest. It appears the market is very close to doing so, but still unclear as to whether it's already started. Range-bound markets are exceptionally difficult to predict, even though my short-term projections have been hit quite consistently. Hopefully, this week will provide some clear answers on the larger picture -- a decisive break lower will tell us that the decline is likely to run for a while. Conversely, a break of the upper trendline will warn us that the market probably wants to stretch the correction a bit higher first. Trade safe.

Just a question. In prior posts you indicated that liquidity moves markets. If the FED starts printing again and the ECB joins in, will that save the market from your very bearish long term scenario?? I listened to a strategist on Financial Sense Online named Barbera. He indicated that FED and ECB could actually save the markets if they both started printing money, QE3, 4 etc. Is that possible? When does the market decouple from this money printing?? Your response appreciated. Thank you again for all you do.

As a EW guru, do you pay attention to MACD divergence. You marked that on your SPX chart, so obviously you saw it. Did that affect your leaning towards a less bearish count or not really?

Also, you still favor a bearish short term count for SPX despite the fact that you saw no clear direction from the chart on hand. Is that because of corroborative evidences from the INDU and NDX charts?

China is one giant asset bubble. They have entire cities that are empty - newly built, housing sold to speculators, no one living in them. Their banks are a mess and their municipalities are completely insolvent. It will get very ugly there.

That's awesome-- I just typed a reasonably long reply to you, then as I was about to post it, I dropped my mouse and somehow it landed PERFECTLY so as to close the whole webpage. :/

Anyway...

ECB *cannot print money* -- it's forbidden by their treaty.

As to the Fed, they're between a bit of a rock and a hard place. Oil/commodities are finally coming down off the QE inflationary binge... unless the Fed wants $150 bbl oil, they can't do more QE right now. And $150/oil kills the real economy. So they can "save the market" only at the cost of the economy.

Thanks appreciate that. Not sure if this last bounce here around 1203 will be just a few points before more downside or if its going be larger. Might cover half or all so I can get a better night's sleep. :) Still have a decent amount short in etfs.

There is a graph over at ZeroHedge showing that the UK is 900% debt to GDP. Vast majority of that debt is in their banking system.

London is the Intergalactic Capital of Rehypothecation. You can use a ticket on the underground as collateral tor leverage on a million pound bet on oil futures.

Point is, the UK gooses the ES anywhere from 2.5 hours to .5 hours before the FTSE starts trading when they are distributing shares. They will be distributing today. Let the rehypothecation wizards do their thing and pump the ES prior to their sell off.

But Brian, ES is now the March contract, with a "discount" of about six bucks. So right now, 9:20 PM Seattle time, I see it at 1204, but if adding 6, that's 1210. So in my mind, not "way down", just back to the lows of last Wednesday. But compared to the high of Friday, 1230, that's way down, I guess.

I've always thought that these empty cities were pre-emptive moves, which planned economies can do, to prevent housing bubbles from forming in the future. Just my theory, that it wasn't some miscalculation in urban development.

Covered @ 1202.50. That should help me get to sleep, of course now I'll be thinking of all the profit I could have made.... No just kidding. Thanks for giving me that last little nudge - at least I'm somewhat hedged now. If we turn around and go up I'll likely be up a small amount tomorrow and if we go down further I'll be up a good amount and still participate in the rest of it.

Its really looking like it wants to break under 1202 right now. :/ That's like 1209 on the cash market I think.

interesting theory...but the south china mall sits empty, 5 years after they created it...at some point it depreciates, and over supply is over supply no matter who has control of the economy. If there are no jobs to bring the people to these towns then their is no demand for the excess supply, they'll continue to live in shacks in the rural lands.

900% is massive, does that include unfunded liabilities? I think the US Medicare and SS debt is about $60T, so about 400% GDP. Who knows what our overall debt would be including our banks and all their re-hyper-hypothecated debt after its all unwound.

ok need your help here, where i shorted was around 18k, and it went down to 17800ish and is now back up to 18k. EUR rallying against the USD, you mentioning the bullish ES wedge is making me a little queasy...any insights on these developments and how it will affect HSI?

TJ, you're killin' me here. I don't generally trade the HSI -- I have no new opinion of it since the chart I did for it. I also have no new opinion of what the market's going to do since I posted the update.

The bullish falling wedge I mentioned in ES has broken to the upside, so ES could return back to flat or slightly green on the session. That's all I got man. :)

PL; good stuff. If this is a double top as you said, then it's a strong reversal pattern. I didn't look at volume, but a quick check should show more volume in the first top than in the 2nd (i recall you mentioning the previous rally to be a buyer-less rally. aloha!

Looks to my untrained eye like an impulsive move off the overnight lows, so 5 waves. I see a 1 up, small pullback 2, a corrective a-b-c flat 4th, then maybe 1 thrust higher to complete a 5th. How's that look PL? The Friday high of like 1224.50 looks to be a good place to target, so how does a trade short @ 1223.00 with a stop 5 points higher sound?

Doesn't sound unreasonable to me. Not sold on the structure though, since ES often looks impulsive and isn't -- or doesn't look impulsive and is. I usually trade ES off the simple stuff when the cash market's closed. btw, ES thus far tonight has been unable to get above the trendline connecting the 12/13 and 12/16 peaks. Sitting just below it now.

Eh - same BS futures action we've had every day the last 6 months. If you only used the futures market as an indicator - we'd be in a new bull market as it closes up every day. The cash market would be in a bear market

The first few days of this week market spx will move slighly up to retest MY 5 major supports, and MY main trendline is now around 1250, but it will not break that, under any condition. This will also clean up the bull sentiment erosion, and the rsi and macd oversold conditions.

The reason I state this with confidence, is that one of MY major tells, gold and silver, are going to go UP, at least for a few days, to change the current overly-bearish sentiment in both of them. Just look at this BIG article, if you doubt, the FRONT page, of yahoo finance news today:http://finance.yahoo.com/news/gold-drop-q1-far-retesting-022358721.html

All this sudden overwhelming negativity on gold, IS (at least shortterm) gold BULLISH (and also for spx, at least shortterm). As such, I am selling all MY silver puts (up 100%+ already), as soon as market opens, and re-buying double their amount at half the price, by the end of this week.

For I repeat, yet again: There is NO decoupling between spx and gold, for more than a few days. And since the spx refused to follow gold down last week %wise, then gold must snap back strongly, with weaker silver will always following---at least to some degree. And spx will continue to meander upward, to test 1250, and then---KAPLUNK, all 3 together, down BIGTIME.

I'd be careful reading too much into that regarding gold "bearishness" -- those guys are hedge fund managers and economists, i.e.- "smart money". There's still a lot of gold bullishness in the retail investor crowd.

With the futures up most of the session, I've been really trying to find something to be bullish about in the cash charts, and in Europe in particular. I'm just not seeing much, at least short term. Still think we're headed lower today or tomorrow. Unless they can keep stretching out this sideways correction, which started on Thursday, for a lot longer.

Could be wrong, but so far all I see is motion within the range established at the end of last week. Maybe the cash market will do something to change my view.

Ergo, what I said---SHORTterm, at least (few days), gold is UP, enough to create, at least, some DOUBT; with spx and silver sluggishly trailing along.

And spx retests borders of POWERFUL BEAST 5 resistances, to get the sleepy amerikan bull fools back in, since all is relaxed sleepy pre-christmassy---and so bull sentiment, rsi and macd, relax all happy.

AND THEN--LIVING HELL. Right up the azz of the memorial date of the birth of the greatest imbecile masochist that ever lived.

just curious, what is the fee/commission rate for trading futures (never traded that before). Are those few pts gains enough to cover or are you under some special trading arrangement where you pay little or no fees

You guys will come to understand that I hate drawdown with a passion -- so when I jump in and out a lot for 3 points here and 4 points there, it doesn't mean that I think the trend has changed, or that I've lost faith in all my charts. It just means I think I can pick up an extra 7 points and lower my risk exposure at the same time.

I want to know who the sucker's were who went long off of the morning's open? Not that I think you'd find any here. But who can possibly have thought after last week's trading that we'd head anywhere but down?

That's why you have to trade using things that are objective, like trend lines and indicators. Otherwise, the pros will take your money all day long. Think like a criminal -- stop runs and misdirection are the norm for these markets.

when you wrote about the "bullish falling wedge" and subsequently said it is broken, I assume the move down (your red 3) was already made in the futures and by the time the cash market opens, we will be gearing for a move up to 4...

I'm mentioning this because you'll find that trying to front-run (in the sense I'm discussing) is one of the least profitable strategies out there. The way I'm using the term "front run" is in the sense that people try to lead a "break" of support before it happens, or a "break" of resistance before it happens. Those are the times you'll be feeling most bullish or bearish (whichever one is wrong in the given situation), and you'll be most prone to betting the exact wrong way. When you're two points below resistance, that's the time to *go short* not cover. When you're 3 points above support, that's the time to *cover* and/or go long -- not vice versa.

Not trading advice of course, but you have to realize that usually when you're feeling like the market will never stop going up or down, it's just fear and/or greed talking. In the long run, the handful of extra points you're going after when you try to front-run in that sense will bankrupt you.

90% of the time, ignore the futures. If you go back and look at the futures during the big waterfall/crash of '08, you'll see there were many days the market opened UP -- and then went on to waterfall lower in the cash market.

No wave counting on futures - got it! Had to go out this morning so missed all the action. I'm in Starbucks now and will miss the afternoon too. Glad I covered last night and didn't have to deal with the 'fake-out' move this AM. Unfortunately didn't get in short again (kicking myself), but my etfs are riding it so I have some exposure.

That's the truth. But do keep in mind that this move down was still expected under the terms of either of my counts. You'll note I mentioned that 1209 being the bottom was something I considered to be "highly unlikely."

I covered and will short again either from higher up, or on a break (since I already have the profit and am not shorting "cold."). This is not the type of market I'm ready to go long in right here at this exact moment.

Absolutely. Additionally, all recent market tops on daily, 4hr, hourly and now this 5minute today, all had similar characteristics in shape, also, psychologically, they "stretched" my rubber band of patience and almost led me to believe that we are turning up. Thank you for pointing this 2nd wave phenomena of tricking people to believe that trend changed. I enjoy watching this unfold again and again. And luckily I didn't actually bite.

You have to understand too, that part of what I'm doing has to do with the fact that so many people got complacent at the Thanksgiving lows -- I just don't want to see it happen again where people are giving back every cent of profit plus. So I'm trying to keep "newbie" readers on their toes, expecially since I've hit every target I've published since the week before last. Don't want everyone thinking I'm infallible, 'cause I ain't.

Pretzel, please forgive me for appearing to be pimping. I myself hate it when people do that on other blogs unless they have something really good. But the other day when I gave you my link, your readers responded in droves. I couldn't believe how many hits my little blog got from them. That tells me that they're interested in one key issue (at least) and that is the Hindenburg Omen. It is about to fire off a round.

It's so important for your followers to know what happens next... not to panic or anything like that. But it IS a big deal. If the market can generate 18 more new 52 week highs, the HO will go off. It could happen within the hour, or theoretically not at all. But we couldn't possibly ask for a better atmosphere for it. IOW, an extremely polarized and dangerous market. Again, I hope you 'and your readers' forgive me for this, but here's the link to the page where I'm updating as the day progresses. The updates are happening in the comments section at the bottom:http://albertarocks-ta-discussions.blogspot.com/2011/12/hindenburg-omen.html?showComment=1324313868130#c6402228585658368315

Same goes for spx, st-wise, it is not avoidable. spx will return to retest.1 more time, dejavu all over again, because, this is THE gsc 5 ending, and---something is seriously wrong with amerikans, maui kid, you do not acknowledge.you all live in a dream world, nothing touches you, while all other humans go to shit.

and only way, you all acknowledge truth, is ONLY when it is unavoidable,INSIDE usa.

So I repeat, ad nauseum---it is only failure, of 1 AMERIKAN institution, that will wake usa 5th wave fools sell BIGTIME.

It ain't gonna be Europe. It will be a usa failure, failure that already exists, but now will be allowed to fail, like lehman.

Morgana Istrampy is MY preferred choice---that should have failed in 2008, along with lehman.

A little sensitive about it -- as I said, had to deal with a fellow whose whole goal was to try to drive my customers to his site so he could:

a) take credit as somehow being "accessory" to my work by throwing random dates at people.b) ultimately go whole hog subscription, lol.

I just put way too much time and effort into this -- and sacrifice *way* too much of my personal life in the process -- to allow a repeat of that situation. So, just trying to head it off -- I'm sure your intentions were more benign than that last fellow.

The rules for the HO were changed a couple of years ago by its creator, Jim Meikka to account for the changing market. It's true that the ETFs were contributing to the numbers of new highs and lows. Further it was argued that the increased number of bond funds was skewing the market although I don't particularly buy into that once since banks have always represented that aspect anyway. To answer your question, the rules were changed in two ways, but the primary onc regarding your question is that the way the numbers of required highs and lows are calculated was altered. The net result is that it is now 27% more difficult for the HO to issue a signal. I sometimes wonder if it is too strict since it missed issuing a signal by two or three issues one week before the flash crash and then again on the morning of the flash crash. It was also somewhat late back in August feeding plenty of fuel to the debunkers.

Yes, my intentions were very good, I assure you. I just thought you and your readers would appreciate the heads up. I've actually been reporting on it over at Seeking Alpha for 26 straight months and I was just so sick and tired of all the calls that the HO had gone off when in fact it hadn't. I just thought you'd appreciate the goods from somebody who knows.

But I very much appreciate your concerns and will respect them in the future. I love your work and I will still pimp 'your' site at will, lol.

Well, much appreciated. I have looked at your site, and once I become somewhat familiar with your work, I have every intention of adding you to my link list -- so no worries on it being a one-sided relationship. I'm just not familiar with you at all yet. :)

Hopefully, that's the correct number -- my tracking system website isn't responding, lol. I may have set myself up for failure by trying to keep track of each number for each donor! Worst case, I'll fire my secretary again. Oh, wait... that's still me. And I'll sue myself for wrongful termination! Don't think I won't!

Looked at a 1-minute chart of the ES, and from the 10:45 lows I see a 5-3-5 (w), then an a-b-c (x), and then maybe the beginnings of another 5-3-5 (y), to complete a double zigzag correction. Maybe it tops out around 1209 ES, so ~1216 cash, then we get another larger push below 1209 cash this afternoon or tomorrow. Any one see this or something else different?

No clue. The ES chart kind of looks like it might be a bull flag, like it might take another shot at 1215 or higher. Might take my couple points and reassess, because I don't think my wave structure assumption played out as I thought.

Right below each post to the right should be a "like" button and a "reply" button. Some browsers have difficulty displaying this for whatever reason. IE seems to work fine and I think Firefox did too, but can't recall. Anyway, try cntrl-a to select all the text on the page to help you see the buttons.

OMG! The like button and reply button were both invisible to me. Even if I ran my cursor over that location they did not light up. Control A revealed them. I'm using Firebox but this is the first time I've ever seen this situation. Thank you so much.

If you have subscribed to the discussion by clicking the Subscribe via Email, then comments would come to your email inbox. You could then just reply to the email from Disqus.

If you are using the web page to reply, there is a button that you can click to reply in a threaded manner. In IE9, it is visible. In IE8, something is wrong and it uses a lot of CPU. In Firefox or Chrome or Safari, the button is still there but is invisible due to some styling problem. But if you hover your mouse in a seemingly blank area below the Hide Conversation button icon, your mouse cursor would turn into a hand. If you click the invisible button there, you will get a reply box appearing magically. Your browser need to have JavaScript enabled, I would think.

Lol, go get a sandwich and come back 15 minutes later and the whole market came unglued there. Very nice to see that level finally give way. Wish I had kept the ES short on. :/ Have some etf shorts so still participating somewhat.

1205-1210 if I recall correctly, so we're bouncing off it as we speak. this down leg was so predictable; repeat of this morning. got all out at 1205. 22% profit day! loving it! now load up for the bounce.

ps: S&P still in the downward channel that started Dec 7, so nothing out of the ordinary yet. I'd re-enter tomorrow, cause it depends on how today goes. seems like it's deseperately trying to fill the Nov '30 gap. So if we go much lower, than now, I'd say keep an eye on 1203-1205. NO TRADING ADVICE...

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